Former SEC Officials Enter Securities Case
Tuesday, July 17, 2007
Three former Securities and Exchange Commission officials yesterday asked for permission to intervene in a Supreme Court dispute that could determine whether defrauded investors can recover money from third parties.
The case has triggered national attention because it is likely to have repercussions for employees and shareholders who lost billions of dollars in the 2001 Enron collapse.
The five-member SEC voted earlier this year to file court papers that support investors and their ability to sue accountants, lawyers and other third parties who did not make public statements about fraud but who nonetheless may have helped their clients carry out the schemes. The SEC brief, however, was never filed.
Last month the U.S. solicitor general, who speaks for the Bush administration before the Supreme Court, did not accept the SEC's position and let pass a deadline for filing legal briefs on shareholders' behalf. The decision came after President Bush and Treasury Secretary Henry M. Paulson Jr. said that position could put U.S. companies at a disadvantage to foreign rivals and expose businesses to substantial financial risks.
The case, in which Charter Communications investors want to sue business partners Motorola and Scientific-Atlanta, is scheduled to be heard by the Supreme Court in its coming term.
A bipartisan group of former SEC leaders, including former chairmen William H. Donaldson (R) and Arthur Levitt (D), and former commissioner Harvey J. Goldschmid (D), asked for permission yesterday to file a post-deadline brief with the high court in what they called a "critical" case.
"Holding liable wrongdoers who actively engage in fraudulent contact that lacks a legitimate business purpose does not hinder, but rather enhances, the integrity of our markets and our economy," wrote their lawyers, New York University law professor Arthur R. Miller and former SEC lawyer Meyer Eisenberg. "We believe that the integrity of our markets is their strength."
The big-money issue has mobilized lawyers who bring class-action lawsuits and the companies and executives they target in one of the most important securities-law issues to reach the Supreme Court in years.
In cases in which fraud-ridden corporations have filed for Chapter 11 bankruptcy protection, investors may not be able to wrest money from the company itself. Lawsuits against business partners and advisers such as accountants and lawyers may present the only rich and viable option for shareholders and plaintiff lawyers, experts said.
Industry groups, including the U.S. Chamber of Commerce, have already signaled their intent to file court papers with the high court. Briefs supporting corporate defendants in the case are due Aug. 15.